Let’s face it, homeownership is a challenging journey. There are dozens of factors to keep in mind, like budget, location, and property type. And right as you are juggling these already complicated aspects of, you stumble upon two words: “freehold” and “leasehold.”
While they may seem confusing at first, the terms freehold and leasehold tell you if you own a property and to what extent. Understanding them helps you decide what type of home ownership works best for you when it comes to freehold vs leasehold property.
In this article, we’ll break down the key difference between freehold and leasehold property in India, so that you are equipped with the information to make the right choice for your homeownership.
What is Freehold Property?
Freehold property means that you have complete ownership of the land and property. A freehold property owner enjoys full control over his/her land and any buildings built upon it.
Freehold land agreements are not subject to any time duration. The owner enjoys easier access to home loans, simpler paperwork, and complete right to sell, transfer, or modify the property.
What is Leasehold Property?
Leasehold property is where a lessor or tenant rents the property from its owner for a predetermined amount of time. The leaseholder can own the building but not the land it is built upon.
Leaseholders are bound by the terms o f the lease agreement and do not enjoy complete control over the property.
In India, flats and apartments are considered leasehold properties, as while you may own your apartment, the land that the building stands on is a leasehold property. The lease duration on a leasehold property can extend anywhere from 30 years to 999 years.
Advantages & Disadvantages of Freehold Property
Freehold property comes with several lucrative benefits and some disadvantages:
Advantages of Freehold Property
Disadvantages of Freehold Property
Complete ownership of land: Freehold property owners enjoy full land ownership. They are bound only by the local land regulations but are free to sell, transfer or modify their property.
Higher purchase cost: Due to the ownership rights and other benefits, freehold property often has a much higher initial cost.
Long-term investment: The value of a freehold property increases with time, making it an excellent investment option.
Maintenance responsibilities: The primary responsibility of property maintenance falls upon the freehold owner.
No extra charges: Freehold property owners fully own their property and pay no extra fees like rent or service charges.
Maintenance responsibilities: The primary responsibility of property maintenance falls upon the freehold owner.
Easier access to housing finance: Lending institutions are often more willing to lend money for freehold properties than for leasehold properties.
Advantages & Disadvantages of Leasehold Property
Leasehold property comes with several benefits as well as some disadvantages:
Advantages of Leasehold Property
Disadvantages of Leasehold Property
Lower purchase cost: Leasehold properties are often available at much lower costs than freehold properties.
Limited ownership: Leasehold property owners do not enjoy complete freedom in making structural changes to their property. They need to abide by the lease agreement terms.
Less maintenance responsibility: The leasehold property owner has only partial maintenance responsibilities at best and can rely upon the freehold owner for land maintenance.
Decrease in value over time: As the lease comes to an end, the value of the leasehold property decreases.
Short-term commitment: Since it has a fixed lease duration, a leasehold property can be an excellent flexible option for people with short-term housing plans.
Challenges with housing finances: Leasehold property owners find it challenging to secure home loans. Financial institutions are less willing to lend to leasehold properties with less than 30 years of lease duration.
Key Differences Between Leasehold and Freehold Property
Understanding the difference between freehold and leasehold properties ensures that you make the right decision for yourself and your family. Here are some key distinctions you should know about:
Criteria
Freehold Property
Leasehold property
Time duration
No time duration
Can range from 30 to 999 years
Control over property
Complete control over land and buildings on it
Restricted control as defined in the lease agreement
Value over time
Increases with time
Decreases with time
Maintenance
Full Responsibility
Partial or no responsibility
Financial obligations
Maintenance costs
Charges owed to the landowner such as ground rent and service charges
Purchase costs
Relatively higher
Relatively lower
Ownership rights
Full ownership of land and structure
Ownership is limited to the lease term
Ease of Loan Approval
Easier to get loans
Difficult if the lease term is short
Legal Aspects & Regulations for Leasehold and Freehold Properties
Freehold and leasehold properties operate under different legal frameworks, each with specific rules and obligations. Let’s understand leasehold vs freehold regulations:
Agreements: Both property types involve legal agreements that outline the roles and responsibilities of the parties involved. Leasehold agreements cover lease duration, rent terms, and maintenance duties. Freehold agreements are less restrictive but still define property boundaries and usage guidelines.
Rights and Obligations: Leaseholders have the right to occupy and use the property within the terms of the lease, including responsibilities like rent payment and upkeep. Freeholders enjoy broader ownership rights but must still comply with local property laws and usage regulations.
Leasehold Valuation Tribunal (LVT): This tribunal helps resolve issues related to leasehold properties, such as lease extensions, service charges, and disputes. It ensures fairness and balance in leasehold ownership and management.
How to Choose Between Leasehold and Freehold Property?
Ownership Rights:
Leasehold: You own the building, but not the land it stands on.
Freehold: You own both the land and the structure completely.
Tenure:
Leasehold: Ownership is for a fixed period.
Freehold: Ownership is permanent, with no expiry.
Rent & Charges:
Leasehold: You may need to pay annual ground rent and service charges.
Freehold: No ground rent; you bear all maintenance costs.
Maintenance Responsibility:
Leasehold: Shared facilities are often maintained by the landowner or developer.
Freehold: You’re fully responsible for all upkeep and repairs.
Modifications & Renovations:
Leasehold: Structural changes may require permissions.
Freehold: You have more freedom to modify (as per local laws).
Loan Accessibility:
Leasehold: Harder to get loans, especially with short lease periods.
Freehold: Easier to secure loans and mortgages.
Resale & Flexibility:
Leasehold: Can be harder to sell if the lease is short.
Freehold: Easier resale and higher property value appreciation.
Long-Term Suitability: Choose freehold for long-term security and control. Choose leasehold if you’re looking for a lower entry cost or short-term ownership.
Freehold vs Leasehold Property: Which is the Correct Choice for You?
While deciding on which type of ownership is right for you, keep the following points in mind:
Extent of ownership: If you wish to have complete ownership of the land and have no restrictions on modifications and transfers, you should go for a freehold property. However, if you feel that flexible, partial ownership suits your needs better, go for leasehold property.
Maintenance vs rent costs: Leasehold property owners regularly pay several charges to the landowners, like ground rent and sometimes partial maintenance charges. Conversely, freehold property owners are solely responsible for land maintenance and have to pay for it indefinitely.
Lease term: Freehold property ownership is not restricted by any time duration and is a long-term commitment. Leasehold property ownership is a less risky and more short-term commitment.
Purchase cost: The initial purchase cost is a common difference between freehold and leasehold properties. Due to the associated benefits, freehold properties usually have a higher purchase cost than leasehold properties. Review your budget to decide which option is best for you.
Access to loans: While freehold properties have higher purchase costs, their owners often have an easier time gaining home loans. Leasehold property owners with less than 30 years of lease duration face greater difficulty securing loans and often have to tackle higher down payments.
How to Convert Leasehold Property into a Freehold Property?
Here are the steps to converting your leasehold property into freehold property:
Step 1: If it is a government property, submit an application to the appropriate government authority. If it is a private property, Draft a sales agreement between yourself and the freehold property owner.
Step 2: Create a conveyance deed and register it at the local registrar’s office.
Step 3: Gather all of the necessary documents, like the original lease agreement, a No Objection Certificate, local authority approval, etc.
Step 4: Ensure that the property is officially transferred in your name in the local civic body’s records.
Documents Needed for Converting Leasehold Property to Freehold
If you’re planning to convert your leasehold property into a freehold one, certain documents are essential to make the process smooth and legally valid:
Original Lease Agreement – This outlines the current lease terms and is a key document for initiating conversion.
No Objection Certificate (NOC) – Issued by the property’s lessor or developer, it confirms their consent for converting the property to freehold.
Property Title Deeds – These establish your current legal ownership of the leasehold property.
Sale Agreement – A legal document outlining the transfer terms agreed upon by you and the freeholder.
Conveyance Deed – A mandatory legal document prepared on stamp paper to formalise the ownership transfer.
Local Authority Approval – Permissions or endorsements from relevant municipal or civic bodies confirming the conversion.
Latest Property Tax Receipts – Proof that all property taxes are paid up to date.
Gather all such documents in advance to avoid delays and for a hassle-free conversion process.
How to Sell a Freehold vs Leasehold Property?
Now that you understand the difference between leasehold and freehold property in India, let’s come to selling. If you’re planning to buy a property, especially as an investor, it’s important to understand how the selling process works for freehold and leasehold property.
Selling a freehold property is generally more straightforward. Once you find a buyer, you draft a sale agreement and get the sale deed registered at the sub-registrar’s office. You don’t need approval from anyone else, which makes the process quicker and more flexible.
In contrast, selling a leasehold property involves a few extra steps. You’ll need a ‘Memorandum of Transfer’, i.e. written approval from the authority that owns the land, often a government body. Only after getting this permission can the property be transferred to the new owner. Once both parties sign the memorandum, the sub-registrar reviews it, and the new owner is issued a sub-lease, usually within a couple of weeks.
The exact steps can vary depending on local rules, so it’s best to consult a local legal expert before proceeding.
Overall, freehold properties are easier to sell, offer full ownership, and are better for getting loans. Leasehold properties, however, are usually cheaper and may involve fewer maintenance costs. So, weigh your options carefully before making a decision.
Conclusion
Educating yourself on the differences between freehold and leasehold properties in India is crucial to ensuring that you make the best choice for yourself.
Tata Capital’s housing finance services can offer an additional boost to your homebuying endeavours by offering house loans at attractive interest rates.
Properties built on government-owned land, properties allotted by development authorities, or those under housing board schemes are usually leasehold and cannot be freehold unless officially converted through a formal process.
What is the tenure period for a freehold property?
Freehold properties have no fixed tenure. Once purchased, the ownership is permanent and continues until the owner decides to sell or transfer the property to someone else.
What are the benefits of freehold property?
Freehold properties offer full ownership, easier resale, no ground rent, more freedom to modify the property, and better chances of getting home loans from banks and financial institutions.
Are freehold properties safe to invest in?
Yes, freehold properties are generally considered safe investments due to full ownership rights, long-term value appreciation, and fewer legal complications compared to leasehold properties.
Can Leasehold Property be converted into Freehold Property?
Yes, leasehold property can be converted into freehold by applying to the relevant land authority, submitting required documents, and paying the applicable conversion fee.
Do banks offer loans to leasehold properties?
Banks do offer loans on leasehold properties, but usually only if the remaining lease period is long. Shorter leases may reduce the chances of approval.
Can freehold land be taken back by the government?
In rare cases, the government can reclaim freehold land for public projects through land acquisition laws, but compensation is generally provided to the owner.
08 May 2025
10 mins read
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